Last week FLT asked you for your 2013 election priorities, and the verdict is clear — taxation reform, cultural change and crowdfunding were all top priorities. Here’s the lowdown on the issues you raised.

ESOP reform

Almost everyone who responded to our survey raised ESOP reform (Employee Share Option Plans) as a priority — no surprises here. As FLT has written, ESOPs provide a way to incentivise staff by offering them a share in a company’s success. They’re expensive and difficult to set-up currently, because of the way they’re taxed.

Dean McEvoy, founder of the group-buying site Spreets which sold to Yahoo!7 for $40 million says the complexities meant his company decided against offering share options to staff.

“Setting up the employee share option scheme was put in the too hard basket in the beginning. We reserved a percentage (of income) to allocate to it, but the tax and admin work to set it up in the beginning isn’t worth the cost for a startup.”

SydStart founder Pete Cooper agrees. He says there are a number of problems with the current regime: “Tech entrepreneurs are time-poor, like most small business owners [who] instead of building great companies that create jobs and wealth for the country, are wasting days and weeks reading thousands of pages of ATO documentation or paying ten times the cost of incorporation for a basic ESOP that is not even guaranteed to comply.”

Crowdfunding

Crowdfunding has taken off in the past few years, with sites like Kickstarter and local platform Pozible, allowing companies to sell products in advance to fund their development. However, there are restrictions on using crowdfunding as an equity financing tool.

The U.S. took the first step towards legalising crowdfunding with its JOBS Act (Jumpstart Our Business Startups). In the UK, the new Seed Enterprise Investment Scheme (SEIS) allows new investors to invest as little as £10, with generous tax deductions (up to 100% if the startup fails!).

In Australia, regulator ASIC is still not convinced. Here’s the most recent statement on the issue from ASIC commissioner Greg Tanzer.

“Having seen how hard it is to raise money in Australia for Spreets and Booking Angel, we should be doing anything we can to make it easier to raise capital,” says McEvoy.

Pollenizer’s Mick Liubinskas agrees. Last month he told the AFR the current restrictions around crowdfunding for investment were holding back Australian companies.

“It stops the bulk amount of people from investing in the next Instagram, Google or Facebook unless it’s their niece or nephew starting the business. We’re missing out on massive amounts of employment, mass amounts of export dollars and also productivity gains,” he said.

Capital Gains Tax

Once startups reach an exit the increase in value results in a capital gains event. As McEvoy explains, Spreets was launched and sold in 11 months, yet half the sale was chewed up by capital gains tax.

“We started Spreets and sold it in 11 months. Under Australian capital gains laws we lose 50% for starting a business from scratch creating over 90 jobs and an industry that now employs over 1000 people in Australia.”

On the investor side, unless you meet certain criteria, or sit under the Early Stage Venture Capital Limited Partnerships (ESVCLP) scheme, you can be taxed when you invest, and for some, that acts as a disincentive for investing in fast-growth companies.

The rules are also confusing when you raise money. Depending on the interpretation of the rules, an investment round could classify as a capital gains event. Cooper has been advocating for the rules to be made clearer.

“We really need to stop the geek tax,” he writes on his blog. He’d like more clarity around what is taxable, and what’s not. “Currently people creating tech startups are unfairly penalised from creating jobs, wealth, innovation and quality of life for Australia.”

“CGT needs to be a simple one page website for self reporting.”

Supporting the Digital Economy

Matthew Macfarlane from Perth-based Yuuwa Capital wants to see Australia become a knowledge economy. “I’m sick of Australia going backwards against other highly educated and developed countries in relation to our progress away from reliance on unskilled labour and mining,” he says.

While the Federal Government has a role to play, some are looking to state governments and local councils for assistance. Colin Kinner, a Director of Spike Innovation, has been working with Brisbane City Council on a number of programs to support the city’s entrepreneurs. He lists the lack of focus on high-growth potential entrepreneurship, the shortage of internationally experienced mentors and the lack of available capital as the top issues facing startups.

“I’m leading a project funded by Brisbane City Council to address the above market failures,” he says. The program will likely include mentoring. The creation of a local seed-fund is also being considered.

These things are all important, but above all, Australian Association of Angel Investors Chairman Jordan Green, thinks we need cultural change.

“We need a government that can get over the tall poppy (syndrome), get out from under (the) fear of failure, commit to a long term plan and use commercial leadership for these programs.

“Australia needs major cultural change and the early-stage ecosystem is a great place to start because it can rebuild culture from within.”

What do you think? Share your thoughts by commenting below.